For Americans, it's Sony side up . . .

Gary R. Saxonhouse

July 16, 1991|By Gary R. Saxonhouse

Japan-bashing, always in vogue with trade protectionists, may be gaining political momentum. But is it justified?

Despite all the harsh talk, Americans have benefited greatly during the past decade from closer economic ties with Japan.

First, a massive inflow of investment capital from Japan and other foreign countries allowed Americans to finance the 1980s defense buildup without a reduction of either their capital stock or their standard of living.

In 1980 Japan revised its foreign exchange control law to allow its citizens and businesses to hold assets denominated in foreign currency. Few events were more important for shaping the American economy, because over the next decade the Japanese invested $50 billion more in U.S. factories and real estate and $80 billion more in financial assets than Americans invested in Japan. Japanese capital in the early 1980s may have lowered U.S. interest rates by as much as four percentage points from the sky-high levels that otherwise would have resulted from the American defense buildup.

The golden age of the Japanese finance of American prosperity may well have ended: Japanese interest rates have risen by almost five percentage points in just over two years, the Tokyo stock market has plunged 40 percent and there are no more government budget surpluses. As a result, Japanese investors are using more of their savings at home in the 1990s than they did during the '80s. Indeed, during 1989 and 1990, Japan began to liquidate some of its investments in America and became a net capital importer from the United States -- perhaps one reason for the recent slowdown of the U.S. economy. It was while Japanese investments in the United States were high that the American economy was most ebullient.

The second advantage for Americans has come from the $680 billion in imports they bought from Japan in the 1980s. Americans who bought Japanese cars, cameras, calculators and VCRs in the last decade did so voluntarily, and presumably thought they got their money's worth. So have the American manufacturers that have purchased Japanese semiconductors, steel and machine tools. Neither the personal computer nor the software business, two of America's highest-growth industries, would have taken off as rapidly as they did without the availability of low-cost, high-quality microchips from Japan.

Japanese imports also helped break the back of American inflation. The early 1980s marked the first time in nearly 30 years that Americans enjoyed a sustained decline in the price of imported manufactured goods, with Japan playing an important role in the cost-cutting. Indeed, competition from Japanese and other foreign firms proved to be the most effective form of U.S. anti-trust policy. The price of all U.S. manufactured goods fell by 4 percent from 1982 to 1990, after rising continuously for 50 years.

The third advantage was that technology transfers from Japan helped revitalize many American industries. The U.S. steel industry, facing mounting losses and bankruptcies, rebounded in the late 1980s -- only after Japanese processing technology was adopted here through joint ventures. The successful joint venture between General Motors and Toyota prompted U.S. auto firms to adopt Japanese just-in-time production methods and other practices that have led to major savings.

Finally, the emergence of Japan as a major importer of manufactured goods has played an important part in America's extraordinary export-led manufacturing boom of the past few years. U.S. exports to Japan have doubled during the last five years, totaling $50 billion last year. Japanese consumed $374 worth of American imports per capita in 1989, while Americans consumed only $360 worth of Japanese imports per capita.

Americans have many legitimate complaints about Japanese policies. Japan's agricultural protectionism is wholly inappropriate for a country that should be bending over backward to further continued international trade liberalization. Regulatory restrictions on stores in Japan have kept down competition from Japanese and foreign retailers alike, restricting the role of high-volume retailers in encouraging imports.

These are the complaints of friendly rivals, not enemies. In sharp contrast to U.S.-Soviet relations during the Cold War, the United States and Japan are locked in a mutually beneficial embrace that extends from finance, trade, investment and technology to the massive exchange of people and ideas. U.S.-Japanese economic, social and cultural integration has benefited both peoples. These benefits will grow as the world's two most competitive market economies become even closer.

Gary R. Saxonhouse is a professor of economics at the University of Michigan.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.